Nasdaq Composite: Tech Stocks Slide as Weak Economic Data Hits US Indices

The Dow Jones Industrial Average fell sharply on Thursday, dropping more than 1%, as investors reacted to new economic data. The S&P 500 and Nasdaq Composite also saw declines, respectively.

At 15:18 GMT, the Dow is trading 40398.49, down 444.30 or -1.09%. The S&P 500 Index is at 5484.43, down 37.87 or -0.69% and the Nasdaq-100 Index is trading 17428.75, down 170.65 or -0.97%.

Weak Economic Data Fuels Concerns

Initial jobless claims rose to 249,000 for the week ending July 27, surpassing the Dow Jones forecast of 235,000. Additionally, the ISM manufacturing index reported a reading of 46.8, indicating a contraction in manufacturing activity. These figures contribute to growing concerns about the state of the U.S. economy.

Chris Rupkey, chief economist at FWDBONDS, commented, “The economic data keep rolling on in the direction of a downturn if not recession this morning. The stock market doesn’t know whether to laugh or cry because while three Fed rate cuts may be coming this year and 10-year bond yields are falling below 4.00%, the winds of recession are coming in hard.”

Federal Reserve Signals Possible Rate Cut

The Federal Reserve recently decided to keep interest rates unchanged, but Chair Jerome Powell hinted that a rate cut might be on the table for September. This uncertainty has influenced market behavior, with Fed funds futures trading indicating an 86% likelihood of a 25 basis points rate cut at the September meeting, according to the CME Group’s FedWatch Tool.

Treasury Yields Decline

In response to the economic data, the yield on the 10-year Treasury note fell to 3.975%, dipping below the significant 4% level. This drop, the first since early February, reflects investor concerns over the weakening manufacturing sector and the potential for future rate cuts by the Federal Reserve.

Mixed Performances in the Stock Market

Despite the overall decline, some stocks showed resilience. Meta Platforms rallied by about 7% following stronger-than-expected second-quarter results and positive guidance. Shake Shack saw a significant rise of over 15% after reporting better-than-expected revenue. Conversely, Arm Holdings and Moderna experienced declines, with Moderna plunging nearly 17% after lowering its full-year sales guidance due to competitive pressures and lower expected sales in Europe.

Market Forecast

Given the current economic indicators and market reactions, a cautious outlook is advisable. The weak manufacturing data and rising jobless claims suggest potential headwinds for the U.S. economy. However, the anticipation of Federal Reserve rate cuts could provide some support to the markets. Traders should monitor upcoming economic reports and Fed announcements closely to gauge market direction. A short-term bearish outlook is prudent, with potential opportunities arising from any positive economic developments or supportive policy measures.

Technical Analysis

E-mini Nasdaq-100 Index futures may have turned an important corner on Wednesday when it crossed to the strong side of pivot at 19178.50. This level is new support. Nonetheless, it still faces headwinds at the resistance cluster formed by the 50-day moving average at 19727.46 and the short-term pivot at 19742.25. The latter is also a trigger point for an acceleration to the upside.

Until it overcomes the 50-day MA, it remains vulnerable to the downside with the 200-day moving average at 18141.78 a strong possibility.